Firms often seek to improve their profit margins by acquiring a supplier - the motive being...

 

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Firms often seek to improve their profit margins by acquiring a supplier - the motive being to capture the supplier's profit (net income) as well as their own. Some financial data is provided in the table below for Company Alpha (acquirer) and Beta (supplier) and the merged company, A & B (assume the companies have no debt): Alpha Beta Sales ($) Profits ($) Assets ($) 20 20 4 40 40 CO 8 2 20 20 A & B 20 20 6 60 a) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of Alpha. [3 marks] b) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of Beta. [3 marks] c) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of the combined company A & B. [3 marks] d) Does Company Alpha or Beta have a higher asset turnover and profit margin? What does this indicate? Explain whether the combined company A & B achieves a higher ROA. Why or why not? [6 marks] Firms often seek to improve their profit margins by acquiring a supplier - the motive being to capture the supplier's profit (net income) as well as their own. Some financial data is provided in the table below for Company Alpha (acquirer) and Beta (supplier) and the merged company, A & B (assume the companies have no debt): Alpha Beta Sales ($) Profits ($) Assets ($) 20 20 4 40 40 CO 8 2 20 20 A & B 20 20 6 60 a) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of Alpha. [3 marks] b) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of Beta. [3 marks] c) Calculate the asset turnover ratio, profit margin and return on assets (ROA) of the combined company A & B. [3 marks] d) Does Company Alpha or Beta have a higher asset turnover and profit margin? What does this indicate? Explain whether the combined company A & B achieves a higher ROA. Why or why not? [6 marks]